Clothiers and fabric makers ‘approaching stagnation’ in 2017

1/5/2017 3:10:00 PM

QNP - Clothiers and fabric makers in Vietnam are 'approaching stagnation' as sales and orders in the international markets continue to dwindle in the aftermath of the demise of the Trans Pacific Partnership.

Overall foreign and domestic sector exports for the segment slowed to a 4.8% growth rate – the lowest in more than a decade – tallying in at US$22.58 billion for 2016, reports the General Department of Vietnam Customs.

Shoemakers didn’t fare much better, said Vietnam Customs, with a growth rate for 2016 of 8.1%, roughly one-half of the 16.3% growth rate experienced during 2015 and nearly one-third the rate for 2014.

Local businesses are left stinging after losing out on the opportunity for investment and exports resulting from the death of the Trans Pacific Partnership (TPP) many industry leaders have said. It has left a void that clearly needs to be filled.

Vu Duc Giang, chair of Vietnam Textile and Garment Association, is one of those who has acknowledged the investment drop is creating a drag on the industry segments, but also notes that higher labour and material prices are a contributing factor.

Clothing and fabric exports are 'approaching stagnation' and sales and orders for the international markets show no sign of making a comeback any time soon, Giang warns.

With the overall global clothing and fabric demand having decelerated in 2016 and competition with China, India, Indonesia and Bangladesh increasing, the slowdown couldn’t have come at a worse time.

The real concern is that the longer-term decline in growth has become the norm rather than a blip and it requires the industry to make 2017 a year of action and not just sit idly by twiddling their thumbs.

In the upcoming year, action must be taken on infrastructure, skills, and access to non-equity finance for local businesses in the industry segments— or the Vietnam economy could suffer negative consequences.

Phan Thi Thanh Xuan, general secretary of the Vietnam Leather, Footwear and Handbag Association, reportedly averred that the slowdown is the result of a shift away from globalization.

Xuan pointed to Brexit and the failure of the TTP as evidence that though globalization has been a powerful economic force for the past two decades, its continuation is not a given.

He said clothiers and fabric makers in Vietnam had started to see a significant drop in orders following the vote by Britain to exit from the EU, which has been further exasperated by the now defunct TPP.

Many in the industry are keen to invest more money in plant and machinery, which holds great potential to increase productivity, Xuan suggests.

The investment would also improve the quality and variety of our products and help build brand strength in international markets.

Both Giang and Xuan point to a Vietnam-EU free trade agreement on the horizon that could be the impetus needed to turn the industry segments around.

The trade pact is expected to come into force in 2018, make market entry in the EU less costly and provide the domestic sector a competitive edge.

However, to take advantage of the opportunity the trade pact affords requires a considerable retooling and revamp of the industry.

The industry segments are currently heavily dependent on Chinese imports for intermediary goods and raw materials.

Those imports currently from China would most likely need to be shifted to the Republic of Korea or significant investment made in the supply chain in Vietnam and those products produced in country due to the complex yarn forward rules of the pact.

Clearly, the sharp decline in clothing and textile exports, to levels approaching stagnation, is disturbing and is causing some to become pessimistic about prospects, but what is needed now is proactive action and dynamic industry leadership, they emphasized.